Think Tanks on the Right and Left Agree: Corporate Tax Holidays Lead to Layoffs, Not Jobs

Left-leaning Institute for Policy Studies and right-leaning Heritage Foundation release the same report findings on the same day: Corporations that claimed tax holidays in 2004 pocketed the cash and downsized workers.

“When Heritage and IPS, two think tanks on opposite ends of the political spectrum, actually agree on something, policymakers should take notice,” says Sarah Anderson, an IPS report co-author. “Our solutions to the problem are polar opposites – we want corporations to pay the full existing tax rate while Heritage wants to permanently lower them. But we welcome their honest assessment that the proposed tax holiday will not create jobs.”

The IPS study — America Loses: Corporations that Take ‘Tax Holidays’ Slash Jobs — shows that most of the companies that claimed a tax holiday in 2004, the last time Congress made such tax holidays possible, actually reduced their national and global workforces.

In fact, 58 of the large corporations that took tax holidays after the 2004 congressional action went on to shed almost 600,000 workers. This downsizing did not stem from recession-linked red ink. These 58 companies today maintain combined cash reserves of more than $450 billion. (See below for other key report findings.)

Companies that took advantage of the 2004 tax holiday essentially “repatriated” their offshore profits without having to pay the standard-rate U.S. corporate income taxes that would have otherwise been due on those profits. The new America Loses report details the corporations that have benefited the most financially from the tax holiday and slashed the most jobs.

The report gives a special spotlight to 10 “Layoff Leaders”: Citigroup, Hewlett-Packard, Bank of America, Pfizer, Merck, Verizon, Ford, Caterpillar, Dow Chemical, and DuPont. These 10 corporations repatriated billions in offshore profits, many from tax haven countries like the Cayman Islands and Bermuda, then announced layoffs and downsizing from 2004 through 2011.

“Some corporations are pushing Congress for another corporate tax holiday,” notes Chuck Collins, an IPS senior scholar, report co-author, and director of the Program on Inequality and the Common Good at IPS. “But history shows that many ‘tax holiday’ companies use repatriated profits to reward executives and other shareholders, then lay off workers. Corporate tax holidays have resulted in precious few U.S. jobs. They are a bad trip.”

The new IPS report’s authors examined tax data and jobs numbers for 58 large corporations that made use of the 2004 corporate tax holiday. They looked at employment numbers listed in annual financial reports and layoff and downsizing lists compiled by Forbes.com and the consulting firm Challenger, Gray and Christmas, as well as media coverage of downsizing.

Precise data, America Loses points out, are not publicly available for all “tax holiday” firms, since no federal law requires U.S. corporations to report their U.S. employment numbers.

“We’d love to see corporations providing the number of Americans they actually employ in their annual reports and filings,” says Scott Klinger, an IPS associate fellow and one of the report’s main researchers. “Until they do, we have to conclude that, based on all available data, corporate tax holidays don’t create jobs and constitute exceptionally poor public policy.”

The new report’s authors also include Sarah Anderson, director of the IPS Global Economy Project at IPS; John Cavanagh, IPS director; and Sam Pizzigati, the IPS associate fellow who edits the Institute’s online weekly on excess and inequality, Too Much.

A month ago, four of the co-authors of America Loses released the Institute’s annual report on executive compensation. This study, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, revealed that 25 top U.S. CEOs received more in compensation in 2010 than their corporations paid in federal income taxes.

“With Americans really struggling, Congress should not be subsidizing job destroyers,” sums up America Loses co-author Chuck Collins. “We should instead be making investments that boost small and domestic business, the real engines of job creation. America needs real solutions to our job crisis, not another corporate handout dressed up as a ‘tax holiday.’”

U.S. taxpayers provided a huge subsidy to corporations that destroyed jobs. Following a tax holiday on repatriated foreign earnings in 2004, 58 corporations that benefited from the holiday slashed nearly 600,000 jobs through layoffs. These 58 giant corporations accounted for nearly 70 percent of the total repatriated funds and collectively saved an estimated $64 billion from what they otherwise would have owed in taxes.

These companies have huge cash reserves. Despite claims that repatriation of offshore earnings is needed to create U.S. jobs, these 58 firms are collectively sitting on more than $450 billion in cash, money that could be invested in job creation tomorrow, if corporations desired.

Tax holidays encourage aggressive profit shifting. Shifting profits offshore has accelerated dramatically since the 2004 tax holiday, suggesting that firms are counting on repeated tax holidays. A year after the 2004 tax holiday, job-destroying corporations had $229 billion in untaxed offshore profits. By 2010, this amount had soared to $696 billion, a 204 percent increase over five years.

Expanding offshore tax avoidance. Some offshore profits stem from legitimate business operations overseas. But a substantial share of these offshore profits come from accounting acrobatics that shift profits generated from sales in the United States to foreign tax havens where corporations face little or no income tax.